Bgc Group Inc (BGC) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2009 BGC Partners Inc. earnings conference call. My name is Carissa, and I will be your operator for today.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to your host for today's call, Mr. Jason McGruder, Head of Investor Relations. Please proceed.

Good morning.

Before we begin, I want to make sure that you know that our fourth-quarter and full-year 2009 financial results press release was issued yesterday. It can be found at either the News Center or Investor Relations section of our website at www.BGCPartners.com.

During today's call, we will also be referring to a PowerPoint presentation that summarizes our results and which includes other useful information. This also can be found in the Investor Relations section of our website.

Throughout today's call, we will be referring to our results on a distributable earnings basis. Please see the sections of yesterday's financial results entitled "Distributable Earnings and Reconciliation of GAAP Income to Distributable Earnings" for a definition of this term and how, when and why management uses it. Unless otherwise stated, whenever we refer to income statement items such as revenues, expenses, pretax earnings or post-tax earnings, we are doing so on a distributable earnings basis only.

I would also refer you to the statement titled "discussion of forward-looking statements," contained in our press release. I remind you that the information in the release and on this call contains forward-looking statements within the meaning of section 27-A of the Securities Act of 1933, as amended, and Section 21-E of the Securities and Exchange Act of 1934, as amended. Such forward-looking statements include statements about the outlook and prospects for BGC Partners or its industry as well as statements about our future financial and operating performance. Such statements are based upon current expectations and involve risks and uncertainties. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied because of the number of risks and uncertainties that include but not limited to the risks and uncertainties identified in the earnings release and BGC Partners filing with the US Securities and Exchange Commission.

We believe that all forward-looking statements are based upon reasonable assumptions when made. However, we caution that it is impossible to predict actual results or outcomes or the affects of risks, uncertainties or other factors on anticipated results or outcomes, and that accordingly you should not place undue reliance on these statements. Forward-looking statements speak only as of the date when made and we undertake no obligation to update these statements in light of such subsequent events or developments. Please refer to the complete disclaimer with respect to forward-looking statements set forth in yesterday's earnings release and the risk factors set forth in our public filings, which we incorporate by reference.

I am now happy to turn the call over to our host, Howard Lutnick, Chairman and CEO of BGC Partners Inc.

Good morning and thank you for joining us today for our fourth-quarter conference call. With me in London today is BGC's President, Shaun Lynn; our Chief Operating officer, Sean Windeatt; and our Chief Financial Officer, Graham Sadler.

BGC's revenues were up 4.2% to $299.8 million in the fourth quarter of 2009. Pretax distributable earnings were up 103.1% to $23 million, or $0.11 per fully diluted share. Post-tax distributable earnings were up by 84.8% to $14.8 million, or $0.07 per fully diluted share. These results exceeded our guidance as our market share in the fourth quarter was stronger than we had expected.

As you may recall, October 2009 revenues were down about 8% compared to last October. We had anticipated fewer declines for November and December. In fact, BGC's revenues were up year-on-year by 13% in November 2009 and 9% in December.

We had solid results across a number of products during the quarter. We generated double-digit percentage revenue increases in rates, equities and other asset classes. I'm also pleased to report that our quarterly revenues related to fully electronic trading were up over 38% compared to last year. I'm also pleased to report that our Board has declared a dividend of $0.06 per share for the fourth quarter, which is payable March 22 to common stockholders of record as of March 8.

I'd now like to turn the call over to Shaun Lynn.

Thanks, Howard, and hello to everyone. While Graham will provide a detailed financial overview, I want to spend a moment discussing the keys to our growth.

There are three main factors that drive revenue and earnings growth for BGC. Number one -- growth in our overall industry and our market share of those volumes; number two, growing fully electronic trading; and number three, adding to our final (inaudible) [headcount]. All three of these drivers have recently been moving in the right direction for BGC and have together allowed us to outperform the overall industry.

Our volume growth has continued into 2010. For example, BGC's fully electronic notional volumes were up by more than 75% year-over-year in both the fourth quarter of 2009 and January 2010. Industry volumes are generally influenced by volatility and primary issuance, which helped drive secondary market trading.

[Market issuance] is the raw material we use to generate revenues, as our fourth-quarter earnings presentation shows. Global sovereign debt issuance has grown substantially over the past year, and virtually everyone expects it to continue to grow for the foreseeable future as governments finance their deficits and also (inaudible) their sizable existing debt. In the United States, Treasury and [ATC] issuance was up by almost 50% in 2009, and the U.S. Treasury predicts the net issuance for the foreseeable future will remain at more than double the level seen in recent years.

In Europe, the EU projects that the average member state's deficit will grow from less than 60% of GDP in 20007 to over 70% in 2009 and reach almost 85% by 2011.

Insolvent debt issuance drives volumes in (inaudible) business for voice/hybrid and electronic transactions. These statistics bode well for a global rights franchise. In addition corporate issuance remains strong. Outstanding corporate debt helps drive our credit business and both sovereign and corporate issues together drive interest rate swaps and CLS volumes.

In our credit business, we have seen particularly strong volumes (inaudible) credit default swaps over the last few months. The debt levels of Greece, Spain and others, along with their fiscal complexity, stimulate demand for [craved] protection.

In our FX business, volumes are improving as credit issues become less of a burden. For our emerging market customers, (inaudible) small [party] exchange and FX derivatives, a change in (inaudible) levels has also helped improve overall volumes. For example, CLS, which settles at 75% of the bank-to-bank spot and forward FX transactions, that its monthly volumes grew by 29% year-over-year in January 2010 after being down 12% for the full year 2009.

With respect to spot FX, our volumes have grown much faster than the corresponding CLS figures in 2009 and so far in 2010. This would lead to our second growth driver, which is fully electronic trading. Historically, e-broking growth has led to higher margin and gross profit over time, even if overall Company revenues remain consistent.

BGC's fourth-quarter 2009 revenues related to fully electronic trading once again improved year-over-year, both in absolute terms and as a percentage of revenue, up 38.3% to $27.7 million. This represented 9.2% of total revenues compared to 7% last year.

For January 2010, the growth rate increased even further. Revenues related to fully electronic trading were up by more than 50% versus January 2009. In both the fourth quarter of 2009 and in January of this year, these increases were broad-based. We generated double-digit year-on-year growth in fully electronic rates brokerage with solid growth in U.S. Treasury, Canadian, and European government bonds.

Over the same periods, we more than doubled overall revenue from fully electronic, FX, and (inaudible) trading [had] recent strong growth in CES FX options, multilevel reports and spot FX. Because of our recent success with BGC Trader, Volume Match and eSpeed, BGC's revenue related to fully electronic trading is becoming more broadly diversified across products in rates, credit and FX.

The final growth driver is front office headcount. In general, the increased adoption of central clearing, straight-through processing and hybrid fully electronic trading tilt the playing field towards the most technically capable interdata brokers. Recent laws and regulations proposed on both sides of the Atlantic concerning overseas trading seem likely to favor BGC and to hamper IDBs with less technology and capital.

BGC's world-class technology platform, unique partnership structure, and successful track record of making accretive acquisitions have enabled us to increase our front office headcount faster than our peers. Our front office headcount, as of December 31, 2009, is up 17.7% year-over-year, which positions BGC well for strong growth in 2010.

BGC had 1553 brokers and sales people as of December 31, 2009. This figure is up 6.5% from 1458 at the end of the third quarter. Average revenue per broker or salesperson for the fourth quarter of 2009 was approximately $188,000, compared to $202,000 in the prior-year period. Historically, the Company's average revenue per broker has declined for periods following significant headcount increases.

Our new brokers and sales people generally achieve higher productivity levels in their second year with the Company. Therefore, as our newer brokers ramp up their production and as we further increase our revenue-generating headcount, we expect a positive impact on our compensation ratio and overall profit margin.

With that, I would now like to turn the call over to Graham.

Thank you, Shaun, and good morning, everyone.

For the fourth quarter of 2009, BGC generated revenues of $299.8 million, up 4.2% compared with $287.6 million in the fourth quarter of 2008. Brokerage revenues were $273.5 million, up 5.3% versus $259.8 million for the prior-year period.

During the quarter, we further diversified our global revenues. PGC's revenues from the Americas were up by 17.5% in the fourth quarter of 2009. Asia-Pacific revenues increased by 18.6%. Europe, Middle East and Africa declined by 4.9%, all compared with the fourth quarter of 2008. In the fourth quarter of 2009, the Americas represented 29.2% of revenues, Asia 16.1% and Europe 54.7%. In the year-earlier quarter, the Americas represented 25.9% of revenues, Asia 14.2%, and Europe 59.9%.

As Shaun pointed out, our new newly hired brokers and sales people tend to generate more revenues in their second year with the Firm than they do in their first. As an example, growth in headcount in our Asia-Pacific region grew by 18% in 2008 and then remains relatively stable in 2009. However, revenues were up by about 18% in the fourth quarter of 2009 compared with a year earlier.

Turning to our market revenue figures, BGC's October 2009 revenues were down approximately 8% to $110 million as compared to last year, up by 13% up to $101 million in November, and up by 9% to $88 million in December. Comparing the fourth quarter of 2009 to the fourth quarter of 2008, rates revenues were $136.6 million, compared to $116.4 million. Credit revenues were up $70.4 million versus $83.3 million. Equities and other asset classes were $38.7 million versus $29.2 million. Foreign exchange revenues were $27.8 million compared with $30.9 million.

Comparing the fourth quarter of 2009 to the fourth quarter of 2008 as a percentage of revenues, rates represented 45.6% compared to 40.5%. Credit represented 23.5% versus 29%. Equities and other represented 12.9%, increasing from 10.2%. Foreign exchange represented 9.3%, decreasing from 10.7%.

Both our volumes and fully electronic rates businesses generated double-digit year-over-year growth in the fourth quarter. Rate revenues increased by 17.4% in the fourth quarter of 2009 compared to the year-earlier period. Fourth-quarter revenues from equities and other increased by 32.5%, driven primarily by solid results in BGC's equity related products as well as growth in energy and commodities.

Credit revenues were down, mainly due to an industrywide decline in corporate bonds (inaudible) volumes. foreign exchange revenues were up sequentially for the second quarter in a row, a decline when compared with the year-ago quarter, due primarily to lower industrywide volumes, particularly for emerging markets' FX options. These declines were partially offset by a more than doubling of revenues from our fully electronic trading of credit and FX products.

Moving on to expenses, total expenses were roughly flat year-over-year at $276.8 million in the fourth quarter of 2009 versus $276.2 million last year. Compensation and employee benefits were $184.3 million and represented 61.5% of revenues in the fourth quarter of 2009. This compares with $181.7 million, or 63.2% of revenues, in the year-earlier period.

For the fourth quarter of 2009, noncompetition expenses declined by 2.2% to $92.5 million, or 30.8% of revenues. This compares with $94.5 million, or 32.9% of revenues, in the fourth quarter of 2008.

In the fourth quarter of 2009, BGC's pretax distributable earnings were $23 million, or $0.11 per fully diluted share, compared with $11.3 million, or $0.06 per fully diluted share, in the fourth quarter 2008. The Company's pretax distributable earnings margin was 7.7% in the fourth quarter of 2009, versus 3.9% in the prior-year period.

BGC produced post-tax distributable earnings of $14.8 million, or $0.07 per fully diluted share, in the fourth quarter of 2009, compared with $8 million, or $0.04 per fully diluted share, in the fourth quarter of 2008. Our post-tax distributable earnings margin was 5% in the fourth quarter of 2009, versus 2.8% in the prior-year period.

Our effective tax rate for distributable earnings was 29.4% in the fourth quarter of 2009, compared to 22.1% in the prior-year quarter. For the full year 2009, our effective tax rate for distributable earnings was 27.3%, compared with 21.6% in 2008. We expect our effective tax rate in distributable earnings to increase slightly to about 28% in the full year 2010.

Our fully diluted weighted average share count was 217.7 million for the fourth quarter of 2009, compared to 189.1 million in the fourth quarter of 2008. Our fully diluted share count stood at 218.7 million as of December 31, 2009.

Turning to the balance sheet, as of December 31, 2009, the Company's cash position, which we define as cash and cash equivalents, cash segregated under regulatory requirements and reverse purchase agreements, was $471.5 million. (inaudible) borrowings were $167.6 million.

Book value per share was $2.46. Total capital, which we define as redeemable partnership interests, noncontrolling interest in subsidiaries, and total stockholders equity, was $440.1 million. In comparison, as of December 31, 2008, the Company's cash position was $361.3 million, notes payable were $150 million, book value per share was $2.31, and total capital was $443.8 million. We expect our cash position to decline as we pay out our year-end bonuses.

Now, I will turn the call back over to Howard.

Thank you, Graham.

In 2009, BGC generated revenues of $100 million in January, $85 million in February, and $101 million in March. I am pleased to report that our January 2010 revenues were up approximately 18% year-over-year to $118 million. The first three weeks of February 2010 were up approximately 26% compared to the same period last year. Therefore, we expect to generate record revenues of between $340 million and $360 million in the first quarter of 2010, up approximately 19% to 26% over the $286.1 million we produced last year. We anticipate pretax distributable earnings to increase between 26% and 43% and to be in the range of $38 million to $43 million.

Now, operator, we would like to open the call for questions.

(Operator Instructions). Rich Repetto, Sandler O'Neill.

Yes, good morning, Howard. I guess you are putting up some impressive growth numbers both in 4Q and 1Q. I guess the question is can you sort of explain maybe what portion is coming from the headcount additions and productivity? I know you're never going to get this exact but versus what -- and you've also outlined a pretty friendly environment. So how you look at it as what is being contributed by your acquisitions versus what's going on out there in the marketplace?

So, let's start. I guess we can start at the top, which is, you know, last year, I talked about how that ultimately the (inaudible) of issuance by sovereign governments, ultimately -- which was a headwind in early 2009. I stated at the time that we've become a tailwind going forward. Well, the winds have shifted and we have some of the big sales in the world. Our rates business, they will be the best rates franchised in the world. The winds are blowing in our way and are starting to blow in a big way.

The issuance that is coming, the bonds that are coming back in these slow businesses are really -- they are beginning to grow in leaps and bounds. So, I would say the biggest numbers you've seen us put up are in our rates franchise. Our rates business is a superb business and is very well positioned and will continue to be well-positioned with these kinds of deficits and these kind of issuance for that -- the good, long foreseeable future. So we really feel good about our position. This is global. The European [techs] are coming. The US (inaudible) it's really great product in emerging markets, it's going to be everywhere, electronic and by voice. So that's sort of the first start of our important numbers.

You then get sovereign debt along with CDS. As you talk about Greece, you talk about Spain, you're going to have ever-increasing amount of people looking for credit protection, and that will continue. You may remember over the many years we've talked about the kind of business that we specialize in. We were really always focused on the underlying cash with its credit protection coming along with it, packages if you will. That kind of business is the kind of business which is being driven today. Certainly, we are seeing growth in it, and it (inaudible) very good.

Brazil -- our acquisition in Brazil was well timed. It just feels like the classic successes that we've had in the past have continued, which is we buy a small broker and then we hook them up to our technology, integrate them into our global platform. Their ability to do business with the world is just dramatically improved. So I think, so far, we feel very good about our Brazilian acquisition and the way it helps our business, both in Brazil and in London and New York. It just added another element to our business, and it feels very good.

Certainly, new headcount always helps, but I think, as Shaun pointed out, that headcount tends to come -- new headcount tends to come at comparatively decreased revenues that one would expect over time. So I would expect the new headcount to really power our growth a year from today. I think Graham gave you that kind of example of how we grew our headcount in 2008. It drove our profits and our revenue growth in the fourth quarter of 2009. So, it takes time, but that's sort of the seeds of our future growth as compared to the first-quarter revenues, which of course they help, by definition they help, but it's really [the others].

Just to get a little bit more specific to one I guess product, it would be the equities and other asset classes revenue. You grew it more than $13 million quarter-to-quarter and well up year-over-year. Any -- is it specific acquisition or just getting a little bit more drilling down into that product?

Well, you remember that we bought Radix (inaudible) known as Radix (inaudible) of course that will grow.

Equity derivatives -- options on equities is a business that we have focused on and then we have built a global platform. So we do it; we have invested in it; we have hired well into it for quite a long time. This is not a new business for us. It is simply, every once in a while, you reach the tipping point in crossover. Our equity derivative business is global; it is strong; it is successful. More and more clients have come to rely on it. We expect it to continue to grow in our equity derivatives space. We have lots and lots of experience or management has lots and lots of experience in equities. We have focused on the areas of equities that we think are the most profitable for us and the kind of business that is great for us. It's not to say anything against equity cash, but our business model is showing tremendous success in equity derivatives globally. So, that is Radix and equity derivatives are part of our growth, and you should see us also expect to invest in commodities as well.

Okay. One last very brief quick question on expenses for I guess Graham -- but professional and consulting fees went up by almost $6 million sequentially from 3Q. Any explanation there?

Well, you need to appreciate that obviously there are costs associated with any expansion of our business and the integration of (inaudible) businesses. As we've expanded, that's really driven that cost increase in this quarter.

Why specifically in 4Q I guess?

Rich, it's Shaun here. Just to mention, we also opened up in Russia in the fourth quarter as well, which obviously that was one of the (inaudible) that caused the growth in the business.

Okay. Okay, thanks. Congrats on the strong quarter.

Daniel Harris, Goldman Sachs.

I was wondering if you can sort of give us a highlight of just how you see the hiring for brokers out there, whether the same competition was there a year ago. You guys have obviously been pretty active in that space, and what your outlook for 2010 is.

I think the competition for quality staff is always intense; we expect it to remain so. You know, talent and capable people are always important to have and will be always be, in our view, important to have.

I think the key differentiator for us is the technology that we put in our brokers' hands. The world, going forward, will require whether that is fully electronic trading, hybrid trading, straight through processing, being able to access central clearing, having the capital necessary to access central clearing and to do it correctly. These are things that require real management, real capacity that we have been doing for many, many years. So I think that is part of why we've been successful in hiring.

Obviously, we acquire and then add to our acquisitions so we enter a new place, whether that's Moscow or Brazil, and then go out and hire into that. We set up the infrastructure there and then hire into that. That's a new place where we can add our technology and add people, so that's always very helpful.

So I think (inaudible) at our partnership structure. The fact is the employees of this firm who are owners of the Company -- and that may well be virtually every one of them -- has equity in some form or another. They believe in the model of investing in technology and delivering superior product for our customers that, a year ago, maybe three years ago, wasn't obvious to everybody but it was obvious to us. All of those employees are excited about it today. You can imagine all of the partners of the Firm who have joined us who own equity in the Company who are now seeing us outperform the industry, driving profit to the bottom line, and they are sharing in the profits through their equity holding. They feel really, really confident and it becomes a virtuous circle.

So I think we have great retention. You know, we just don't have to pay the same costs other people do (inaudible) retain our key staff. It our costs comparatively low. I think we just have a great product, we are in a great place, and it's working for us.

Thanks, Howard. That's great.

You know, if I could switch over to the FX line item, in the past, you've talked about how weak emerging markets was sort of the driver of why those numbers went down. I think a couple of things here, though -- we are seeing some exceptional growth in the futures trading on CME. I think you could make the claim that's from new clients or some of the issues going on with the US dollar. How should we think about your ForEx business going forward from here and any specific areas of strength or weakness that you may see?

And then, is there anything else that is specific about foreign exchange going forward that you think makes it sort of a secular growth story from here?

This is Shaun.

We invested quite heavily in electronic trading in spot FX. It's been one of our major successes over the last six months. We are very bullish on our part and we managed to grow our business quite substantially over the last six months. It took a long time to come to fruition. It's a market space that is very well (inaudible), as we all know. We are very bullish on foreign exchange over the course of the next two years; we think that it's an area of investment for us. I think the competition is aggressive. I think we (inaudible) that technology was more than well-placed, was very well placed to compete with our competitors.

Okay, thanks. Then just moving on to the equity and the other line, obviously that was well above what we were looking for. I'm sorry if I missed it in some of your prepared remarks, but the fourth quarter obviously was spectacularly strong. I'm just wondering if you can help us parse through. Was any of that owing to some of the new brokers that you might have hired from some of your competitors, or was there anything in the fourth quarter that you guys did different? Should that carryover at that -- obviously very tough to predict specific quarters but is that carryover is a run rate going into 2010?

No (inaudible) carry on. We are continuing to grow and build into that and hire. These are hires we made some time ago and now they are seeing their (inaudible) basically.

So both foreign-exchange and in equities, these are great place for us. We've invested in it for quite some time. You know, a couple of years ago, you wouldn't hear us talking about (inaudible) those numbers, you are starting to see them. They are starting to become worth breaking out and discussing. So equity derivatives are the place. We have a global platform that we keep adding to it all of the time and our FX platform and turning that business electronic as well. Now that it is growing again around the world, we should get more than our fair share of it because I think we are very well placed. I think, as in our prepared remarks, we said we expect our volumes to exceed the CLS numbers, or they certainly have done so far. We feel very comfortable about our position.

Okay, so then just to reiterate, assuming the market remains roughly the same as it did in the fourth quarter -- and that's always tough to say -- it's not a bad place to start from, in terms of us looking at the revenues, the sort of new number that you had in equity and other -- again, just because it was so much higher than what we had seen recently.

Well, I am sort of done with the fourth quarter. I'm kind of looking at major -- a company that's substantially larger in the first quarter than the fourth quarter. So I would say we would expect our numbers across FX and equities and other to grow; we would expect those to grow. In fact, they are growing.

Okay. No, that's fair. Thanks a lot, guys. I will get back in the queue.

(Operator Instructions). Rob Rutschow, CLSA.

Good morning, everybody. I was hoping you could I guess reconcile the comment about lower broker productivity with the guidance that you've given for the first quarter. If I look at the revenue guidance, it seems like, if I hold headcount steady, you are going to be at one of the highest broker productivity levels we've seen since probably 2008. So are you expecting more hires to come on, or is there something out there that I am missing?

Well, I sort of -- you need to square that with our guidance. Our guidance is kind of simple, which is if you take our revenues for January, which I gave you, and I gave you three weeks worth of February, I kind of defined that. Simple math puts you at $340 million to $360 million. So I really wasn't looking for anything interesting to happen in my guidance. I sort of described actually -- I thought one of the great changes that we had come to last year was like me giving you all of the information that I have up to that point -- kind of makes it obvious why we are where we are.

So last year, we guided -- the fourth quarter, we guided what we guided because October was October. Obviously, we outperformed in November and December.

So our point about new headcount is that basically they set the stage for future growth per head. Therefore, that will drive economics to the bottom line. Right? So, our compensation ratio should decline in the second year after significant headcount. I think part of that was described by Graham when he showed that, with the same headcount, a year later we are producing more revenues. So if you have more revenues with the same headcount, the same non-compensation infrastructure costs, obviously your compensation ratio will, by definition, decline.

So I think the overall point that we are making is that our new headcount is comparatively -- and our new acquisitions -- which of course new headcount always includes the new people we've acquired through an acquisition like Liquidez. They are going to underperform our long-term employees, on average. But we expect, over time, that in their second year, they will move to the average and therefore our compensation ratio will decline. So we think the compensation ratio you've seen recently is at the higher end of what we expect. As they produce, you should see our compensation ratio decline.

Secondly, with fully electronic trading growing from 7% to 9.2%, we would expect that to positively impact our compensation ratio. That also will help us keep our compensation ratio in check to decline. So certainly within the next quarter or two -- I'm not making a comment for certain with what will happen in the next quarter or two -- but our outlook for compensation ratio generally is very optimistic. We do not expect it to go the way of some others. We expect it to stay in check and relentlessly improve. That is a return on our investment and our return on productivity on the people we have here and our retention capacity due to the partnership.

Okay, that's helpful, I guess. Maybe I can try it a different way. The I guess longer tenured employees, are you expecting them to be more productive in 2010 as -- I guess it sounds like the sort of operating environment is a little bit better.

Yes.

Okay. I guess, along those lines, in the rate business, you talked about sovereign debt issuance. I was just curious. Does the duration of a debt issuance matter to you guys? It seems like, at least in the US, we've seen a lot of short duration issuance. If they go out longer on the curve, does that help you more?

Yes. I would say shorter than the two-year notes doesn't particularly help us. Two-year notes and longer, we are indifferent.

Okay. Then lastly, I was hoping you could talk about some of the regulations and proposed regulations that are out there and what impact they may have on BGC, like the bonus tax in Europe and maybe in the US and the Tobin tax and some of the other issues that are out there. Maybe if you can just kind of quantify which ones you see as sort of the most positive and most negative for you guys.

Well, I've never had to read so many things that probably won't ever exist before in my life. You know, I read drafts of things, and drafts and drafts of things and changing drafts of things. So, generally speaking, the legislation has included electronic alternative swap, execution facilities, electronic transaction facilities and exchanges.

That kind of language, which to my knowledge is in all the domestic US regulations, would be adequate for us. We like the way the world is, obviously, today, but it's going to change. We are very well equipped, if not the best equipped, to handle the over-the-counter markets electronically in whatever that world puts us.

So I would say it is at worst, from what I've read, in my opinion, neutral, and unlikely to tilt in our favor, which is, I think, one of the things that Shaun said, which is that we think that there are some small brokers who may not be able to keep up with the technological difficulties that are coming their way, and the rules and regulations and whatever they will be. I think that will help consolidation up to people who are very well positioned like us. So I think it will work for us.

But I worry about everything (inaudible). You know, I have to read all of these things and all of these different kind of things worry us, make us nervous. You know, the bank payroll tax just gives me a headache. And it doesn't give us a headache per se; it gives my clients a headache. Our clients' headache is our headache just the same. So we are very much in tune with market (inaudible). We think, as a macro view, that trading businesses that focus on liquid assets are not the thing that the regulators are going to scream and yell about. Ultimately, the pain came from illiquid assets, real estate assets, you know, subprime mortgages, private equity, hedge funds, things that were illiquid that these banks held on their balance sheet that they couldn't sell.

I don't remember anybody complaining about stocks, government bonds, corporate bonds. They blamed [CDS] but it wasn't really [CDS] of some of the loans (inaudible) bond and has sold credit protection against. It had to do with this outright speculation, which is not really our business and not really where we've been.

So, I think, in fact, the rules will be focus our clients' capital exactly on the businesses in which we thrive. It can move capital away from the private equity side of these folks, which we never saw. Some of the new, more difficult things and packaging that they did that we never did any trades in, right, and move them into the businesses that are liquid, flow businesses in which we believe in and thrive. I think it is reasonably possible, although I certainly don't expect it, but I think it is reasonably possible that the world will work in a way that creates evermore tailwinds behind us. I am not going to predict it because G-d knows I have no idea what's coming, right, but as a general person who smells what the air feels like, that's just sort of my take on it.

All right. Thanks, Howard.

Rich Repetto, Sandler O'Neill.

Just one last one -- you normally talk about or it's sort of in the guidance for, say, a full year. you've used -- talked about 52% revenues normally come in the first half (inaudible) if there's ever a normal year. The question is, this year, with the productivity as well as these other drivers in the market, like regulatory, etc., and sovereign debt, do you think that 52% -- are your budgets reflecting 52%/48%?

I don't really talk about those kinds of things but the historical relationship of growth in the first quarter and how it historically played out you have articulated correctly. I only like to (inaudible) what we know was in front of us and what we've seen, which I've done. But your historical percentages are right. I'm not going to comment that the world is any different from what it was historically. I have said in the past last quarter that I thought some of the historical relationships were coming back into focus. That's why I thought we would outperform in the first quarter. That's what I said last quarter when I pointed out that October was a good barometer for the first quarter, and it was indeed. So I think some of those relationships are coming back into place. You have correctly articulated what the history has been.

Okay, thank you.

Daniel Harris.

One of the things I didn't hear much about today but I'd love to get your views on is how you think it things are proceeding with the ELX platform. Obviously, there's been a lot of news around some CFTC comment letters and some types of transactions. What are you seeing there? Any change in the last few weeks or months? How do you think about that still going forward from here?

Well, we are very, very bullish on ELX. It's open interest has been growing, numbers of users have been growing. They are building the (inaudible) products. It is a very, very exciting asset that we own 25% of it. We are very, very bullish on it. I think the EFF opportunity is really extraordinary. I think it's important.

I think Neal woke up. The CEO has done an excellent job of articulating why it is appropriate. I think it matters, and I think it matters, and I think it will dramatically improve competition in that space.

But of course, none of our guidance of course reflects any contribution from ELX. In fact, we exclude such contributions from ELX. So I think when ELX grows -- and we are very optimistic about it. I think it could well make a very positive impact at our firm. But we are very optimistic and I think it's been pretty well made public the EFF standard that Neal woke up and ELX's Board is pushing. I think it has lots and lots of merit and as far as I can tell so far does the CFTC agreement.

Okay. Then just lastly, a numbers question from me for you or Graham. Where do we see the impact of the litigation you guys were going through in Europe? Is that in the professional consulting fees line? And as that winds down, should the number move down materially from where it was in the fourth quarter?

Yes (inaudible)

I think the right way to say it is yet but no other comment.

Okay, thanks very much.

There are no further questions. At this time, I'd like to turn the call back over to Mr. Lutnick for closing remarks.

Well at least we are ending it with a laugh! That's pretty good.

Anyway, obviously as you can tell from the call, the Company feels like it's an excellent place -- you know, issuance in our business, focus on our business (inaudible) our customers have really moved in the right direction, fully electronic trading ever taking more hold. So we really appreciate your time and attention today. I want to thank you for joining us and we look forward to speaking to you again next quarter. Have a great day today.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.